ERP at the Center of Digital Transformation Strategies
IDC ANALYST CONNECTION
Raymond Boggs, Vice President, SMB Research; Mickey North Rizza, Vice President, ERP and Digital Commerce
ERP at the Center of Digital Transformation Strategies – Digital transformation is fundamentally changing the value of enterprise resource planning (ERP) software, allowing businesses to transform decision making and enhance business outcomes. Digital transformation encourages businesses to rethink their technology strategies, and that includes moving beyond legacy ERP and back-office systems. New sources of innovation and creativity to enhance experiences and financial outcomes are paving the way toward cloud-enabled ERP software. Small and midsize businesses have put cloud-enabled ERP systems at the center of their transformation journeys because of the technology’s ability to achieve the business’ performance goals.
The following questions were posed by SAP to IDC’s Ray Boggs, vice president of SMB research, and Mickey North Rizza, vice president of ERP and Digital Commerce research, on behalf of SAP’s customers.
When does digital transformation require updating a current ERP system or acquiring an ERP system for the first time? What critical needs should drive investment decisions?
The fundamental needs of a business change as a company grows, but this is not always obvious to the company. For small businesses, managing via spreadsheet and basic accounting becomes inadequate and harder to sustain as the organization expands and becomes more complex. Midsize to large companies with a traditional ERP system will face similar challenges. As businesses expand operations and locations, a growing number of employees will need transparency, visibility, and real-time information on a range of performance dimensions.
With digital transformation in mind, what are the benefits of ERP, especially near-term benefits that will have immediate impact?
Business process improvement and better management are critical benefits of an effective ERP system. But it is also important to think about the larger group of stakeholders and different constituencies, external as well as internal. The entire value chain is significant to enhancing a business, increasing market share and improving both short-term and long-term profitability. Tying business processes from end to end in the value chain reduces overlaps in processes and time, bringing greater efficiency.
What are the business “pain points” that an effective ERP solution addresses?
The stress posed by the increasing pace of change in the competitive environment is encouraging firms to rethink their use of management and reporting resources. And the same holds for business growth as firms move to the next level of size, complexity, and performance obligations.
International expansion or potential mergers and acquisition decisions can also place new demands on organizational resources. Something as basic as working with multiple currencies and localized legal requirements (including taxes) can be especially challenging. Companies, in part because of their success, can feel that the business is getting out of control, especially if different systems have evolved over time. This can show up as a difficulty closing the books in a timely way, an inability to tie financial results to inventory, or an inability to quickly bring forward profit and loss, balance sheet, and cash position reports.
The need for a “single point of truth” can also be apparent over time in growing firms, where there may be multiple pockets of information that are assembled independently. The ability to coordinate and align multiple information streams in a way that’s compatible with growth (i.e., a scalable solution) is essential if managers are to understand and guide operations.
How can ERP serve as the center of the digital transformation journey, a framework for moving forward?
IDC surveys show that small and midsize firms worldwide overwhelmingly prefer to build incrementally off current resources where possible, even while applying new and innovative solutions to take business performance to the next level. ERP solutions can serve as an effective framework for those adding an ERP system for the first time as well as those updating and adding incremental solutions such as HR management or CRM. Some ERP solutions tailored for the midmarket can even be purchased as an integrated suite that includes HR or CRM modules that can be “turned on” as a company grows or when it’s needed to help enhance coordination while avoiding disruption (another key concern that small and midsize firms cite when making major technology investments). For first-time ERP users, this capability can help future proof an investment to ensure that capabilities can be added when the time is right.
What are the deployment options for ERP, and what are the benefits to different approaches?
There are two primary deployment options for ERP: on-premises solutions and cloud-based solutions. On-premises software is installed locally, on a company’s own computers and servers. Cloud-based software is typically hosted on a technology provider’s servers and accessed through a web browser.
On-premises solutions are, in most cases, capital expenditures as a one-time perpetual license fee with recurring fees for support, training and updates. In addition, if there is any customization to workflows, updates may also require customization. On-premises solutions, often preferred by large enterprises, can require major up-front investment in software and hardware. Large enterprises typically customize their workflows and want more control over the ERP rollout and implementation processes.
What role can ERP — particularly cloud-based ERP — play in preparing my firm for the future?
ERP helps improve basic operations, of course, keeping companies organized and providing a framework for growth. But it also enables innovation and stronger competitiveness in the long term.
IDC survey work found a strong commitment to innovation investment among midsize firms, with the average IT budget allocated to operation (60%) and innovation and transformation processes (40%). This is similar to what IDC found among larger firms and quite different from smaller firms, which devote a larger share of their spending to near-term “keeping the lights on.” Midsize firms also expect their balance of spending will continue at the same ratio over the next two years. This commitment to innovation while supporting current operations is precisely what IDC recommends — a tactical and strategic view that sets the stage for long-term success.
Recycled from: ERP at the Center of Digital Transformation Strategies – IDC Analysts Report Small and Midsize Businesses January 2018